Intangible assets, such as brand reputation, intellectual property (IP), and especially customer and corporate data, account for approximately 90% of business value these days. This trend is largely driven by the exponential growth of digital data and other forms of information in our modern world. While traditionally valued businesses like oil and energy companies lost their position at the top as data became increasingly important, data-driven firms like Amazon and Meta are now taking center stage.
So how can you get a handle on your data and understand its value to your organization? The answer lies in a data valuation—understanding the significance of your business data, as well as the ways equity analysts determine its value.
Let's delve deeper into how equity analysts determine data's value to help you improve the value of your data and get more out of it.
What's a Data Asset and What Makes It So Valuable?
To understand how equity analysts value data, it's vital to understand how data assets are defined. To be quantifiable, a data asset must:
- Be distinct and identifiable. A data asset may include many files, tables, or records from a database.
- Promise prospective future economic benefits. The data asset must have useful applications that may produce future cash flow for itself or others.
- Be under the control of your organization. You must have the right to use the data in a manner that complies with applicable laws. You should also have systems in place to protect the data from unauthorized access.
Then, we can divide data assets into two categories: informational and economic. Informational data assets provide insights into a company's performance, such as financial data. Economic data assets are those that you can monetize, such as customer data.
Keep in mind that data assets, like any other valuable resource, have their own value. This value is determined by the data’s:
- Accuracy: How error-free it is.
- Scarcity: How unique it is.
- Utility: How helpful the data is in assisting decision-making.
How to Determine the Value of Your Data
Data valuation frameworks can help you understand the value of your data assets, so you can make better decisions about how to invest in them. There are a few different frameworks out there, but they all aim to answer two fundamental questions:
- How much is my data worth?
- How do I increase the value of my data?
Equity analysts use a few different methods to value data. The most common method is the market approach, which looks at comparable companies to estimate the value of a data asset. Another standard method is the cost approach, which estimates the value of a data asset by its replacement cost.
These (and other) methods have their advantages and disadvantages, so equity analysts may use a combination of techniques to value data.
It's Not Just about Data Quality, It's How You Manage It
Would you leave your cash in a vault you couldn't easily access? Or limit the amount of money you can save by getting a too-small safe? Not likely, because you want your money to grow, work for you, and be available when you need it. We can say the same about data. The better you manage your data, the more valuable it becomes.
Good data management includes data governance, which is the creation and enforcement of policies and procedures to ensure accurate, consistent, and accessible data. Data governance also encompasses data security and protecting your data from unauthorized access.
All that said, data management is a continuous process, not a one-time event. As your data changes and grows, so should your data management practices.
Why Conduct a Data Valuation?
So, you understand what data assets are and you know how to value them. But why even bother?
There are a few key reasons:
- To uncover new use cases. Reevaluating data can help you find new ways to use and monetize it.
- To increase the value of your company. If you want to sell your company or raise capital, a data valuation will help you understand how much your data is worth so you can price your assets accordingly.
- To get more value from your data. If you want to make better decisions about using your data, a data valuation will help you understand what kind of return on investment (ROI) you can expect from different projects.
- To make sure you're not overspending on data. A data valuation can also help you understand if you're overspending on data. For example, you may pay too much for data that isn't very accurate or useful.
- To help you understand the risks associated with your data. A data valuation can help you identify any risks associated with your data. For example, you may have data at risk of being leaked or stolen.
- To benchmark your company against others. This practice is helpful because it can give you an idea of where your company stands in terms of its data assets.
In short, data valuations can help you unlock the hidden value in your data assets. And that can help you create more value for your company.
Knowing Data’s Value Increases Potential for Business Success
Data is a valuable asset, but it's only as valuable as the insights you can glean from it. To get the most value from your data, you need to understand how to value it.
A data valuation can help you know the worth of your data assets, which then helps you make better decisions about how to use them. So if you want to get more value from your data, start by valuing it.
The next step from there to unlocking the value of your data will be to look at how you’re managing this precious asset. To learn more, read “If Data Is as Valuable as Cash, It’s Time to Treat It That Way.”
